Thursday, May 29, 2008

100 Million SharePoint Users

In this post, I continue my rant on the disruptive nature of SharePoint. Well before Microsoft’s entrance into the ECM software market, the incumbents (market leaders: Documentum and FileNet ) had abandoned customers in the low-end tiers of the market, who did not need all the bells and whistles provided by the Advanced ECM capabilities in their solution offering. Their strategy focused on moving up the technology trajectory by developing features that will sustain their position and protect their market share in the ECM software market. By targeting these non-consumers of Advanced ECM solutions, Microsoft was able to established a beach head in the ECM software market with the launch of SharePoint in 2001. I doubt that the incumbents initially perceived SharePoint as a threat to their businesses, especially because SharePoint 2001 was positioned as a Collabotion/Portal solution and it's ECM capabilities where rarely touted/non-existing.

Borrowing from the principles of the disruptive innovation, I will speculate on the factors that may have also contributed to the incumbent's initial/continued reaction to Microsoft's entrance:
  • SharePoint was simpler, cheaper and lower performing product and therefore did not threaten the revenues from the customers served by the incumbents;
  • A lower price point/margin product such as SharePoint was not going to provide the next growth opportunities required to justify their stock price to Wall Street;
  • The most influential/profitable customers wanted an Advanced ECM functionality.

Simpler, Cheaper and Lower Performance
The first versions of the SharePoint Technologies: SharePoint Portal Server (SPS) 2001 and SharePoint Team Services (STS) provided very basic document management functionality. STS was a free version of the SharePoint technology which shipped with Windows 2000 server. An administrator could easily enable it (SPS or STS) for a team’s use without additional software or cost. SPS was targeted at departmental use, the document library feature it provided was limited in functionality and the workflow support had to be removed in the next version. It sold for about $50/cal and less than $5000.00 per server license. It lacked support for enterprise deployment and management features. Its main customers were departments or small businesses who needed a simple system for collaboration and document storage. It had a simple interface and was easy to install. It was more widely deployed as an Enterprise Portal solution and an Enterprise Search solution than an ECM solution.

SPS 2003 was only marginally better than the first release of the product. It addressed some of the issues and bugs that prevented the deployment of SPS 2001, but provided no new major functionality. It still lacked critical features to support enterprise wide deployment and use. However, SPS 2003 and Windows SharePoint Services, the successor to STS 2001, were widely deployed at the departmental levels largely because they were more stable and provided the basic feature set needed for a departmental collaboration and document management. Microsoft Office SharePoint Server (2007) can be considered Microsoft’s ECM version 1.0, again its simpler, easy to use feature set made it appealing to the masses. It now has support for server farm and significant improvements were made to support enterprise wide deployment, management and scalability.

Despite these improvements in functionalities, SharePoint does not directly threaten the core businesses of the incumbents. Incumbents see the rapid growth in the adoption of SharePoint as an opportunity to integrate its department level document management capability with their Advanced ECM capabilities. Their strategy is to position their platform as the central repository for all content in the enterprise even when the content begins life in SharePoint. This is a win-win scenario for them with SharePoint occupying the departmental tier and their Advanced ECM platform occupying the enterprise tier of the ECM market.

Lower Price/Margin Product
Customers at the lower-tier of the ECM software market are price sensitive, therefore they are willing to accept a good enough feature set at a reasonable price. The incumbent's value network of distributors, solution providers and sales associate will find it hard to justify any investment in a low-end product. Profit at the lower-end, lower price point tier will have to come from volume sell which the incumbent’s value network and cost structure is not equipped to do. It is also doubtful that the internal process, used by incumbents to justify investment and select projects would have approved the developing of a product with such low margins compared to the high margins enjoyed by their current product offerings.

On the contrary, Microsoft’s resource allocation framework, project approval process and value network can support a product at the price point that MOSS 2007 is offered. Microsoft's Sales Professionals and Solution Providers have developed a good process for making profit at the price points through volume sale and services. In addition, it appears that Microsoft’s internal process supports funding for disruption technologies as long as they show growth and profit potential.

Customer Demand
Business Process Management (BPM), Records Management and Compliance issues dominated the ECM industry for years. The customers targeted by the incumbents already had an ECM system with advanced capabilities and therefore the performance attributes they desire from their ECM software shifted to these areas. It is only natural and logical that the market leaders spend their R & D dollars to satisfy these needs, thus investing in sustaining technologies to maintain their market positions. The market size for these sustaining technologies can be readily determined and computing a rate of return above the company’s hurdle rate is a much easier exercise. Additionally, the customers – a key holder of resources (money) needed – are not asking for a simpler and lower performing product, for which they have no use. These customers now demand that SharePoint work with their Advanced ECM systems and naturally the market leaders are investing in sustaining technologies by building adaptors to integrate SharePoint with their platforms.

100 million users can't be wrong, ok 100 million user licenses can't be wrong, SharePoint has certainly crossed the chasm. A search for "Microsoft + SharePoint" returns almost 4 million hits, a similar search for "EMC + Documentum" and "IBM + FileNet" returns 352,000 and 544,000 hits respectively. Microsoft now has a SharePoint Only Conference which is well attended and the incumbents are not left out of the frenzy, they now have SharePoint sessions at their respective conferences which are sold out. has over 1200 titles on SharePoint. Disruptive innovations create opportunities in their value chain and SharePoint has certainly created it's share of opportunities for Microsoft Solution Providers and ISV partners. Vorsite Corporation, my employer, is a beneficial of the opportunity created by SharePoint's rapid adoption.

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